The Canadian-US Trade War: Reshaping Consumer Behavior and Investment Strategies in North America

The Canadian-US trade war, now in its fifth month, has triggered a seismic shift in consumer behavior and investment patterns across North America. With retaliatory tariffs, provincial-level economic nationalism, and a coordinated boycott of U.S. goods, Canada has leveraged its economic weight to challenge U.S. trade policies. For investors, this conflict has rewritten the rules of regional markets, creating both risks and opportunities.

The Consumer Shift: From Tariffs to Trolley Carts

As of July 2025, 63% of Canadian households have reduced purchases of American products, while 55% are cutting back on U.S. travel, according to the Bank of Canada's latest survey. These figures reflect a broader cultural and economic pivot toward self-reliance. Provinces like Ontario and British Columbia have institutionalized this shift: Ontario's ban on American alcohol sales and British Columbia's prohibition on liquor imports from Republican-led U.S. states signal a long-term strategy to insulate domestic markets.

The impact extends beyond consumer goods. The energy sector, a cornerstone of Canada's economy, faces a paradox: while U.S. tariffs on Canadian oil exports have raised costs, the retaliatory restrictions on U.S. energy imports have bolstered domestic demand for Canadian oil and gas. This duality has created a “buy Canadian” imperative that is reshaping supply chains and consumer habits.

Investment Implications: A Reassessment of North American Portfolios

The trade war has forced Canadian investors to reevaluate their exposure to U.S. assets. A Nanos Research poll for Bloomberg News reveals that 47% of Canadians believe pension funds should reduce U.S. holdings, while only 9% advocate for increased exposure. This sentiment is already reflected in market behavior: Sun Life Financial Inc. reported record outflows from U.S. equity funds in Q1 2025, as clients sought to reallocate capital to Canadian equities.

The S&P/TSX Composite Index has gained 9.5% year-to-date in 2025, outperforming the S&P 500's 6.8% rise. This outperformance has not gone unnoticed. Quebec's Caisse de Dépôt et Placement du Québec, which holds 40% of its assets in the U.S., is reportedly reassessing its U.S. exposure, with CEO Charles Emond calling the era of U.S. exceptionalism “the peak.”

Sector-Specific Opportunities and Risks

The trade war has created divergent fortunes across sectors. Canadian energy and manufacturing firms are benefiting from both retaliatory tariffs and domestic policy support. For example, Ontario's CA$1.3 billion in tax credits for local manufacturers has bolstered steel and automotive producers, shielding them from U.S. tariffs. Conversely, U.S. automakers and steelmakers face existential threats: 25% tariffs on Canadian steel and aluminum have already led to plant closures and production cuts in the U.S. Midwest.

Investors must also consider the ripple effects of the boycott. The decline in U.S. consumer spending on Canadian imports—such as dairy and lumber—has created short-term volatility but also spurred innovation in alternative markets. Canadian agribusinesses, for instance, are pivoting to Asian and European buyers, diversifying their revenue streams.

Strategic Recommendations for Investors

1. Rebalance Toward Canadian Equities: With the TSX outperforming the S&P 500, investors should consider increasing exposure to Canadian energy, manufacturing, and infrastructure firms. Look for companies benefiting from government incentives, such as those in Ontario's tax credit program.
2. Diversify Away from U.S. Consumer Goods: The shift in consumer behavior suggests long-term underperformance for U.S. brands in Canada. Reduce holdings in American retail, liquor, and appliance manufacturers.
3. Hedge Against Geopolitical Risk: Given the uncertainty of trade negotiations, consider defensive assets or commodities like gold, which have historically served as safe havens during trade wars.
4. Monitor Provincial Policies: Provincial-level actions—such as toll hikes on U.S. vehicles or procurement bans—could further escalate the trade war. Stay attuned to policy changes in Ontario, Alberta, and British Columbia.

The Road Ahead

The Canadian-US trade war is no longer a short-term disruption but a structural shift in North American economics. While the U.S. seeks to protect its manufacturing base, Canada's coordinated boycott has demonstrated the power of economic nationalism. For investors, the key lies in aligning portfolios with this new reality: favoring domestic champions while hedging against the unpredictable fallout of escalating tariffs.

As the trade war enters its next phase, one thing is clear: the era of seamless cross-border integration is over. The future belongs to those who adapt to a world of fractured markets and recalibrated loyalties.